State regulators are "very close" to endorsing federal legislation that will establish a surplus lines carrier's home state as its primary regulator, and their backing is an important step for the bill to win passage in Congress this year, an industry lobbyist told risk managers last week.
However, state support is limited to Title 1 of the bill–H.R. 1065, the Nonadmitted and Reinsurance Reform Act of 2007–according to Joel Wood, senior vice president and director of federal affairs for the Council of Insurance Agents and Brokers. He made his comments at the annual Capitol Hill conference of the Risk and Insurance Management Society.
"Reinsurance is another issue," noted Mr. Wood. He said the reason state regulators support the surplus lines portion of H.R. 1065 is "they believe that only through enactment of the legislation will they have the momentum to create an interstate compact that will govern this." The bill also would set federal standards for regulation of reinsurance.
(Earlier at the conference, a panel of congressional staff members briefed the group, but RIMS refused to allow press coverage unless reporters signed a gag order prohibiting them from quoting any of the speakers directly or indirectly. National Underwriter refused to sign the agreement. See page 5 for more details.)
On other topics, Mr. Wood and a senior adviser to a member of the House Financial Services Committee, who asked not to be identified, noted bipartisan support for legislation allowing risk retention groups to offer property insurance, as well as movement on legislation creating an optional federal charter.
"The last few months have been far more interesting than I thought they would be," Mr. Wood said, citing the blueprint for financial modernization released by the Treasury Department in late March, as well as concerns over it voiced by state regulators. (See related stories on page 8 and page 26.)
He said a question remains as to whether support for an optional federal charter for insurers contained in the report "is the end of the OFC debate or the beginning of it."
In Mr. Wood's view, state regulators have "gotten scared. There is motivation based on either fear or opportunity." Specifically, he said, state regulators feel "there is going to be movement on this over the next two-to-three years."
Mr. Wood noted that a surplus lines bill has passed the House twice, virtually unanimously, adding that "it has a mechanism for sharing regulation and taxes that everyone agrees to."
But Mr. Wood cautioned that even if the legislation passes, some states–such as Texas and California–"that like to go their own way are never going to come around on a full interstate compact."
However, even if only 20 states agree to the compact, it will ensure that the only rules governing surplus lines insurance will be the rules of the home state, he said.
In addition, having a hearing before the Senate Banking Committee is a critical component to getting the bill passed this year. "We have to have a hearing," said Mr. Wood. "Getting oxygen is our number-one issue on this bill right now."
By "oxygen," Mr. Wood meant getting the issue before the Senate during the period when that body is dealing with housing legislation, high gasoline prices, the budget, and the fact that 2008 is a presidential election year.
Both Mr. Wood and Libby Baney, Washington counsel for the National Association of Professional Surplus Lines Offices, said the final bill will have a definition of sophisticated buyer that is acceptable to RIMS.
"That's guaranteed," Mr. Wood said, explaining that such a definition is important because RIMS members are the consumers of surplus lines insurance.
"Who is the consumer? You are. The Consumer Federation of America doesn't represent the market for this product. You do," he said, adding that if the Senate holds a hearing on the surplus lines bill, he will "urge that a RIMS representative testify."
On legislation concerning risk retention groups, Mr. Wood said the "catapult" for passage of this measure is provisions solidifying the corporate governance standards for such entities.
The legislative adviser said he was "bullish" on the legislation, adding that broad bipartisan support for the bill, as well as backing from consumers and some potentially affected industries, leaves him hopeful it can at least pass the House in this Congress.
The adviser said concerns had been voiced over whether the definition of "property insurance" in the measure is too narrow or too broad. He said some people have argued that the definition is too narrow, but others say the current definition in the bill "pulls in personal lines." RRGs are now limited to providing liability insurance.
He also said some critics of the bill argue it would require RRGs to participate in insurance guaranty funds. "That is a concern," he said. "We don't want risk retention groups pulled into" such funds.
Both issues, he said, will be addressed in legislative language before the bill is presented to the House Financial Services Committee.
At the earlier RIMS panel presentation, which excluded press who did not sign a nondisclosure and confidentiality agreement, participants included:
o Kathleen Mellody, majority counsel of the Capital Markets Subcommittee of the House Financial Services Committee.
o Robert Gordon, senior Republican counsel to the House FSC.
o Sarah Kline, Democratic majority counsel of the Senate Banking Committee.
o Andrew Olmem, Republican minority counsel to the Senate banking panel.
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